London midday: Stocks extend gains amid China-US hopes; Morrisons under pressure

London stocks had pushed further into the green by midday on Tuesday, underpinned by optimism over Sino-US trade talks, with Morrisons bucking the trend after a mixed update.

The FTSE 100 was up 1% at 6,875.47, while the pound was flat against the dollar and the euro at 1.2778 and 1.1143, respectively.

As a second day of talks between Chinese and US officials was due to kick off in Beijing later, Spreadex market analyst Connor Campbell said the main driver of optimism appeared to be "a lack of mood-dampening comments" rather than any actual positive headlines.

"Also potentially playing a part in the gains are reports that the UK is sidling up to the EU to try and see whether it could get an Article 50 extension," said Campbell. "If that is the case, it suggests that a) the government remains doubtful Theresa May’s agreement stands any chance of getting through parliament, and b) there really isn’t any appetite for a ‘no deal’ exit."

A Telegraph report suggested that Prime Minister Theresa May was in secret last-minute talks with EU leaders about possibly extending the 29 March Brexit deadline.

However, Brexit Secretary Stephen Barclay was quick to quash the report on Tuesday and stress that the government remains committed to leaving the EU in March. Barclay said he had not spoken to the EU about that and any delay would cause "some very practical issues".

On the economic data front, the latest figures from Halifax showed house prices surged past expectations in December, but the overall trend remained weak.

House prices were up 2.2% compared to a 1.2% decline the month before and well ahead of expectations for a 0.2% increase. On the year, house prices rose 1.3% after a 0.3% increase in November, comfortably beating expectations for a 0.4% jump.

Halifax managing director Russell Galley said: "Overall, house price growth in 2018 was very much within the range of 0-3% as we forecast at the start of the year. In 2019, we’re expecting continued stability in house prices with between 2% and 4% price inflation. This is slightly stronger than 2018, but still fairly subdued by modern comparison."

Pantheon Macroeconomics economist Samuel Tombs said no one should place any weight on the jump in Halifax’s house prices index in December, pointing out that it is three times as volatile as the Nationwide index.

"Looking ahead, surveys indicate that buyer demand has begun to fall sharply again, primarily due to Brexit uncertainty, which should mean that sale prices undershoot asking prices by a greater-than-usual margin. But the decline in risk-free interest rates that Brexit uncertainty also has triggered will feed through to lower mortgage rates soon," Tombs said.

On the corporate front, Morrisons - the first of the big four supermarkets to report its Christmas trading - was down in the dumps as wholesale growth over the festive period disappointed investors, despite the grocer beating retail forecasts and notching up its fourth consecutive Christmas of growth.

The shares also took a knock after data from Kantar Worldpanel showed the group was the second-weakest among its rivals. Morrisons saw its growth slow to 0.1%, with its market share dropping to 10.6% from 10.8%.

Analysts at Bernstein said the 0.6% LFL retail growth figure should be "reassuring" against a high comparative growth the year before, slightly up versus consensus of 0.5% and "despite a very cautious UK consumer at the end of 2018". However, he noted that the contribution from wholesale missed consensus by 60 basis points, almost all of which was due to the McColl business being transferred after the deal signed early last year.

Elsewhere in the retail sector, sportswear specialist Footasylum slumped after warning that full-year earnings would be towards the lower end of analysts’ forecasts, while gross margin would be lower than current market expectations as a result of heavy discounting over Christmas.

The FTSE Smallcap company said it had seen "some of the most difficult trading conditions in recent years" over the festive period, amid economic uncertainty and weakening consumer sentiment.

Lifestyle brand Joules defied the high street gloom, however, as it said it continued to trade well over the festive period, putting on course to achieve its pre-tax profit expectations for 2019.

Elsewhere, building materials group SIG was the worst performer on the FTSE 250 after saying it expects profit for 2018 to drop on the back of lower trading revenue amid challenging market conditions.

Paper and packaging companies DS Smith and Smurfit Kappa were among the risers on the top-flight index as Jefferies added its voice to those seeing an opportunity for a re-rating in the European packaging sector as the market is too negative.

Broadcaster ITV gained as Liberum suggested that STV's signing of a five-year partnership with Sky on Monday covering its video on demand services could make a tie-up between ITV and Sky possible.

Pub operator Greene King rallied as it posted a 10.9% jump in like-for-like sales over Christmas and the New Year and expressed confidence over the full year, while Safestore rose as it reported a 135% increase in full-year pre-tax profit.

In broker note action, Vodafone was hit by a downgrade to ‘underperform’ at RBC Capital Markets, but Electrocomponents and Rotork were on the rise after upgrades from Jefferies and Bank of America Merrill Lynch, respectively. Capital & Counties also got a boost from an upgrade to 'add' at Peel Hunt.

Market Movers

FTSE 100 (UKX) 6,875.47 0.95%
FTSE 250 (MCX) 18,178.54 1.13%
techMARK (TASX) 3,353.78 0.47%

FTSE 100 - Risers

Smith (DS) (SMDS) 321.70p 5.13%
ITV (ITV) 132.40p 5.00%
Smurfit Kappa Group (SKG) 2,176.00p 4.62%
Melrose Industries (MRO) 173.85p 4.54%
Rolls-Royce Holdings (RR.) 846.20p 4.52%
Next (NXT) 4,781.00p 4.50%
GVC Holdings (GVC) 718.61p 4.22%
Standard Chartered (STAN) 618.60p 4.04%
Marks & Spencer Group (MKS) 270.70p 3.84%
Ashtead Group (AHT) 1,817.00p 3.62%

FTSE 100 - Fallers

Morrison (Wm) Supermarkets (MRW) 211.70p -3.62%
Vodafone Group (VOD) 155.46p -1.23%
BT Group (BT.A) 235.10p -1.20%
International Consolidated Airlines Group SA (CDI) (IAG) 590.20p -1.07%
Fresnillo (FRES) 906.20p -1.07%
Evraz (EVR) 471.30p -0.86%
Anglo American (AAL) 1,757.20p -0.77%
Smith & Nephew (SN.) 1,409.50p -0.74%
AstraZeneca (AZN) 5,965.00p -0.67%
London Stock Exchange Group (LSE) 4,179.00p -0.64%

FTSE 250 - Risers

Electrocomponents (ECM) 529.20p 5.63%
Rotork (ROR) 263.40p 5.32%
Just Group (JUST) 98.90p 4.99%
Aston Martin Lagonda Global Holdings (AML) 1,266.80p 4.64%
Greene King (GNK) 578.00p 4.48%
Computacenter (CCC) 1,012.00p 4.12%
Playtech (PTEC) 429.00p 4.10%
Rank Group (RNK) 148.00p 4.08%
Capital & Counties Properties (CAPC) 247.90p 3.90%
Just Eat (JE.) 632.00p 3.88%

FTSE 250 - Fallers

SIG (SHI) 107.90p -7.46%
Indivior (INDV) 114.65p -4.30%
Contour Global (GLO) 185.30p -2.42%
Centamin (DI) (CEY) 118.05p -2.20%
Softcat (SCT) 586.29p -1.96%
Renishaw (RSW) 4,030.82p -1.69%
Energean Oil & Gas (ENOG) 639.70p -1.58%
Plus500 Ltd (DI) (PLUS) 1,467.00p -1.54%
Wizz Air Holdings (WIZZ) 2,885.78p -1.48%
Hikma Pharmaceuticals (HIK) 1,665.00p -1.33%